MGIC Investment Corp (MTG) (Q1 2024) Earnings Call Transcript Highlights: Strong Financial ...

• Net Income: $174 million for Q1 2024.

• Annualized Return on Equity: 13.7%.

• New Insurance Written: $9 billion during the quarter.

• Insurance in Force: $291 billion, a decrease of 0.5% year-over-year.

• Annual Persistency: 86%, remained flat quarter-over-quarter.

• Share Repurchases: 4.7 million shares for $93 million in Q1; additional 2.7 million shares for $55 million in April.

• Quarterly Dividend: $32 million paid, representing a 72% payout ratio of Q1 net income.

• Authorized Share Repurchase: Additional $750 million program announced.

• Dividend Paid to Holding Company: $350 million.

• Balance Sheet Capital: $6 billion.

• Reduction in PMIERs Required Assets: $2.2 billion due to reinsurance agreements.

• Earnings Per Share: $0.64 per diluted share for Q1 2024, up from $0.53 last year.

• Adjusted Net Operating Income Per Share: $0.65 per diluted share, up from $0.54 last year.

• Loss Ratio: 2% for the quarter.

• Favorable Loss Reserve Development: $49 million in Q1.

• Delinquency Inventory: Decreased by 6% to approximately 24,100 loans.

• In-Force Premium Yield: 38.5 basis points, remained flat quarter-over-quarter.

• Book Value Per Share: $18.97, up 14% year-over-year.

• Net Investment Income: $60 million, an increase from last year.

• Operating Expenses: $61 million, down from $73 million in Q1 last year.

• Warning! GuruFocus has detected 3 Warning Sign with ACR.

Release Date: May 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• MGIC Investment Corp reported a net income of $174 million in Q1 2024, with an annualized return on equity of 13.7%, demonstrating strong financial performance.

• The company has a robust reinsurance program that reduces volatility of losses and provides capital flexibility, contributing to a $2.2 billion reduction in PMIERs required assets.

• MGIC's disciplined capital management strategy includes a new $750 million share repurchase program, reflecting confidence in financial stability and shareholder value enhancement.

• The company experienced favorable loss reserve development due to better-than-expected cure rates on delinquencies, leading to a low loss ratio of 2% for the quarter.

• MGIC's investment portfolio yielded a net income increase, with investment income rising by $11 million from the previous year, benefiting from higher interest rates.

Negative Points

• MGIC's insurance in force slightly declined by 0.5% year-over-year to $291 billion, indicating challenges in growing the portfolio amid market conditions.

• The company acknowledged losing some market share in new insurance written (NIW) during the quarter, which could impact future revenue growth.

• High interest rates and affordability challenges continue to pose headwinds to the mortgage origination industry, potentially affecting MGIC's business volume.

• Despite a stable housing market, the supply constraints caused by the lock-in effect of low-interest rates from past years could limit new home purchases and insurance opportunities.

• Operational challenges remain with the expectation of an increase in delinquency notices due to the seasoning of large book years from 2020 and 2021.

Q & A Highlights

Q: Can you discuss the NIW growth this quarter compared to peers? A: Timothy James Mattke, CEO & Director, MGIC Investment Corporation, acknowledged a slight loss in market share this quarter, attributing it to the pricing environment from the previous months. He emphasized the company's commitment to disciplined pricing and expressed confidence in the long-term strategy despite the short-term dip.

Q: Regarding capital return, should we expect all earnings this year to go towards that? A: Timothy James Mattke, CEO & Director, MGIC Investment Corporation, indicated that the company's approach to returning capital through dividends and share repurchases would continue, especially given the current excess capital at MGIC and the holding company.

Q: Could you provide more details on the cure activity this quarter and the return of seasonality? A: Nathaniel Howe Colson, Executive VP & CFO, MGIC Investment Corporation, explained that the return of seasonality is becoming apparent, with cure rates outpacing new notices, particularly in the early delinquency stages. This trend is attributed to the stabilization post-pandemic and government interventions.

Q: How did you arrive at the $750 million figure for the new buyback program? A: Timothy James Mattke, CEO & Director, MGIC Investment Corporation, stated that the figure was determined based on the company's capacity to execute the buyback under various scenarios, ensuring flexibility and adherence to strategic financial management.

Q: Can you comment on the reserve release from 2022 and Q1 2023 notices and their origination vintages? A: Nathaniel Howe Colson, Executive VP & CFO, MGIC Investment Corporation, noted that the favorable reserve developments were broadly based across various loan characteristics and not concentrated in any specific cohort, reflecting better-than-expected cure rates and lower severities.

Q: What are your expectations for delinquency rates and the impact of the current interest rate environment on origination partners? A: Nathaniel Howe Colson, Executive VP & CFO, MGIC Investment Corporation, suggested that delinquency rates would likely remain low if unemployment stays low. Timothy James Mattke added that while the origination market faces challenges due to limited housing supply and higher interest rates, the demand remains robust, supporting stable home prices.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.